Legislature(2001 - 2002)
04/19/2001 08:08 AM House CRA
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ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 19, 2001
8:08 a.m.
MEMBERS PRESENT
Representative Kevin Meyer, Co-Chair
Representative Carl Morgan, Co-Chair
Representative Andrew Halcro
Representative Drew Scalzi
Representative Lisa Murkowski
Representative Gretchen Guess
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 217
"An Act relating to municipal property assessment and taxation;
and providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 217
SHORT TITLE:MUNICIPAL PROPERTY ASSESSMENT AND TAX
SPONSOR(S): REPRESENTATIVE(S)KOHRING
Jrn-Date Jrn-Page Action
03/27/01 0742 (H) READ THE FIRST TIME -
REFERRALS
03/27/01 0742 (H) CRA, JUD
03/27/01 0742 (H) REFERRED TO CRA
04/19/01 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE VIC KOHRING
Alaska State Legislature
Capitol Building, Room 24
Juneau, Alaska 99801
POSITION STATEMENT: Spoke as the sponsor of HB 217.
KAREN BRETZ, Staff
to Representative Kohring
Alaska State Legislature
Capitol Building, Room 24
Juneau, Alaska 99801
POSITION STATEMENT: Offered information on HB 217.
LOUISE KARI
Phillips Alaska
(No address provided.)
POSITION STATEMENT: Expressed concern that HB 217 could
adversely impact Phillips Alaska as well as other members of the
oil and gas industry.
STEVE VAN SANT, State Assessor
Division of Community and Economic Development
Department of Community & Economic Development
550 W 7th Ave Ste 1790
Anchorage, Alaska 99501-3510
POSITION STATEMENT: Discussed the fiscal note analysis.
DAN DICKINSON, Director
Tax Division
Department of Revenue
550 W 7th Avenue, Suite 500
Anchorage, Alaska 99501-3566
POSITION STATEMENT: Offered information regarding the fiscal
note analysis.
BERT COTTLE, Mayor
City of Valdez
PO Box 307
Valdez, Alaska 99686
POSITION STATEMENT: Testified in support of HB 217 if it would
[allow local control over the assessment and taxation of real
property].
JULIE KRAFFT, Director
Member Services
Alaska Municipal League
217 Second Street, Suite 200
Juneau, Alaska
POSITION STATEMENT: Discussed AML's thoughts on HB 217.
JAKE JACOBSON
4010 Woodland Drive
Kodiak, Alaska 99615
POSITION STATEMENT: Expressed his hope that HB 217 would pass.
ACTION NARRATIVE
TAPE 01-21, SIDE A
Number 0001
CO-CHAIR CARL MORGAN called the House Community and Regional
Affairs Standing Committee meeting to order at 8:08 a.m.
Representatives Morgan, Meyer, Scalzi, Guess, and Kerttula were
present at the call to order. Representatives Halcro and
Murkowski arrived as the meeting was in progress.
HB 217-MUNICIPAL PROPERTY ASSESSMENT AND TAX
CO-CHAIR MORGAN announced that the only order of business before
the committee would be HOUSE BILL NO. 217, "An Act relating to
municipal property assessment and taxation; and providing for an
effective date."
Number 0114
REPRESENTATIVE VIC KOHRING, Alaska State Legislature, spoke as
the sponsor of HB 217. He explained that HB 217 addresses real
taxes and property taxes. Currently, the state dictates how
taxes are administered. This legislation [attempts] to give
control to the municipalities for taxing. If municipalities had
that local control, there would be greater efficiencies in terms
of decision making.
REPRESENTATIVE SCALZI referred to the analysis attached to the
fiscal note, which says, "this bill could also cost the State of
Alaska millions of dollars of revenue received through
assessment of oil and gas properties provided for under AS
43.56." Currently, there is a personal property/real property
assessment that the municipality takes up and the state takes up
the difference between that and the 20 mills. Therefore, he
asked if the fear is that the state will not be able to collect
the state tax on oil.
Number 0407
KAREN BRETZ, Staff to Representative Kohring, Alaska State
Legislature, explained that HB 217 does not intend to change how
oil and gas properties are taxed but rather addresses only
properties owned by individuals or corporations. She noted that
she has spoken with several people regarding [the aforementioned
concern with oil and gas properties] and thus she felt that
would have to be determined later.
REPRESENTATIVE SCALZI commented that, to him, the legislation
doesn't seem to impact the oil companies.
REPRESENTATIVE HALCRO inquired as to how one would address this
concern later. He asked if there had been any work done to
address the oil and gas properties.
MS. BRETZ reiterated that it wasn't the intent of this
legislation to impact the oil and gas properties but rather to
address the individual homeowners and the communities. However,
she noted that she had spoken with a Phillips' representative
who said that the oil and gas properties might be impacted by
this legislation. In further response to Representative Halcro,
Ms. Bretz related her understanding that the Alaska Municipal
League (AML) wasn't taking a stance on this.
Number 0603
CO-CHAIR MEYER inquired as to whether HB 217 could run the risk
of placing all the property tax burden on businesses in an
attempt to provide residents property tax relief.
REPRESENTATIVE KOHRING affirmed that such could be a
possibility. He pointed out that it would to the municipality's
discretion to determine how to balance that.
REPRESENTATIVE KERTTULA asked if Representative Kohring would be
amenable to an amendment that clarified that it is not the
intent of HB 217 to impact oil and gas properties. Thus,
exempting those properties in Title 43.
REPRESENTATIVE KOHRING said that he was amendable to such an
amendment.
Number 0779
LOUISE KARI, Phillips Alaska, testified via teleconference. She
informed the committee that she is responsible for property
taxes for Phillips Alaska. Ms. Kari expressed the company's
concern that HB 217 could adversely impact Phillips Alaska as
well as other members of the oil and gas industry. The majority
of Phillips Alaska's property is taxed under the provisions of
[AS] 43.56 at a statutory rate of 20 mills on an assessment
assessed by the state Department of Revenue. Ms. Kari said,
"While this bill could result in a shifting of property tax
revenues on these properties from state to local government,
that would not directly impact Phillips Alaska." However, she
pointed out that Phillips Alaska, as do other members of the oil
and gas industry, does have property that is not subject to [AS]
43.56 and thus could directly be impacted by the change proposed
in HB 217. These properties include Phillips Alaska's LNG plant
and tankers as well as construction equipment and office
facilities. Ms. Kari emphasized that HB 217 would provide
certain communities with the opportunity to significantly shift
the local tax burden to Phillips Alaska's industrial property.
She posed the following example: "Theoretically, a community
could tax oceangoing vessels at a 30 mills Section 43.56
property and any other industrial property at 20 mills and
totally exempt all commercial and residential property." This
bill potentially adversely impacts Phillips Alaska and could
also adversely impact other industries. Therefore, Ms. Kari
encouraged the committee to hold another hearing in order to
provide an additional opportunity to hear from those parties
that may currently be unaware of the impact of HB 217.
Number 0940
REPRESENTATIVE HALCRO mentioned that Valdez instituted a tax on
tankers a few years ago. He asked if Ms. Kari could speak to
how this legislation could potentially impact that situation in
the future.
MS. KARI noted that [Phillips Alaska] is currently litigating
the validity of that tax. Assuming that the tanker tax was held
to be appropriate and legal, Ms. Kari expected that Valdez would
be able to fully fund its property tax obligations with a
combination of the tankers and the pipelines and pipeline
terminal facilities. She also expected that to meet the
requirements of AS 43.56, [Valdez] would have the additional
ability to tax industrial properties such as the Petro Star
refinery. Therefore, she believes that Valdez could conceivably
not tax their local residents at all.
Number 1047
REPRESENTATIVE KERTTULA surmised that exempting all the property
under AS 43.56 and some other property would essentially exempt
all the oil and gas property that might be impacted.
Representative Kerttula asked if she was correct that such an
exemption would satisfy the oil industry, although it may not
satisfy other businesses.
REPRESENTATIVE KERTTULA imagined that such a change is possible
with the use of "except for" language [that would be followed by
language that would] define the property out of this
legislation. She asked if the [oil and gas] industry would be
satisfied if this legislation didn't apply to the oil and gas
industry.
MS. KARI related her belief that the issue revolves around how
the tax burden is shared among different categories of property.
If [Phillips Alaska's] locally assessed property was exempted,
but other properties were excluded from the tax base or given a
lower mill rate, "we" would still be impacted because "we" would
probably end up with a higher mill rate.
REPRESENTATIVE SCALZI explained that it would be a shift in the
amount of taxes "needed" to collect rather than a change in the
mill rate. In other words, if the mill rate on personal and
real property was lowered and the municipality still needed that
level of taxes, then the municipality would have to take it from
the oil industry. He specified that up to 20 mills is not
problematic because they would pay that anyway. However, he
believes that Ms. Kari is referring to other properties owned
[by Phillips Alaska] that wouldn't fall under the exemption or
could have a different rate than that of personal and real
property.
REPRESENTATIVE GUESS said that the [Phillips Alaska] building in
Anchorage would be an example of the "other property."
REPRESENTATIVE SCALZI replied yes. He guessed that this would
provide a municipality with enough options to differentiate
between certain taxable oil properties and certain personal and
real properties.
REPRESENTATIVE KOHRING indicated his agreement with
Representative Scalzi's understanding.
REPRESENTATIVE SCALZI clarified that a different rate wouldn't
be applied but rather a shift of the burden.
Number 1276
REPRESENTATIVE GUESS inquired as to how it would not be a change
in the mill rate.
REPRESENTATIVE SCALZI remarked, "I guess ultimately it would
probably would."
REPRESENTATIVE MURKOWSKI related her understanding that the mill
rate couldn't be more than the full and true value of the
property. Therefore, even if a municipality needs to make up
"the gap," it could only be made up to a certain point that is
to the value of the property.
REPRESENTATIVE SCALZI agreed that would be correct for "those
properties." However, a municipality could choose to tax other
properties at less than their market value and thus there would
be a shift.
Number 1383
STEVE VAN SANT, State Assessor, Division of Community and
Economic Development, Department of Community & Economic
Development, testified via teleconference. Mr. Van Sant
informed the committee that [the division] helped pen some of
the [fiscal note] analysis that is included in the committee
packet. As that analysis specifies, under a "worst case
scenario," the state could lose around $20 million. It is
difficult to estimate what this legislation would cost the state
because we are unsure what municipalities might do. However, he
agreed that there would be a shift in the tax burden in some of
these communities.
MR. VAN SANT informed the committee that currently there is a
statute under Title 43 that limits the amount of money that a
municipality can take from the state, which is referred to as
the 225 percent formula. This formula is complicated and has
been to the Supreme Court. To date, everything that has been
done has been approved by the court. Mr. Van Sant explained
that the state collects 20 mills on the entire oil and gas
property and the state gives a credit to the oil companies for
any dollars given to the municipality. He informed the
committee that the following communities have the approximate
mill rate specified: North Slope Borough - 18.5 mills; Valdez -
20 mills; Fairbanks - 16 mills; and Kenai - 10 mills.
Therefore, there is some extra available and going to the state.
However, the problem arises when a municipality wants to issue
bonds, which would be exempt from the 20 mill cap and thus the
reality is that the municipality can go above that mill rate.
In fact, municipalities can go up to a total of 30 mills for
operations, even though the state is only receiving 20 mills and
it can be taken from the unorganized borough where the state is
receiving those revenues. Therefore, "it could potentially cost
the state, actually, all of the revenue that it is getting," he
said. He highlighted the fact that a number of areas such as
Delta-Greely and Copper River are considering forming. Both of
the aforementioned areas contain a substantial amount of oil and
gas properties. If HB 217 passes, it would be to the benefit of
those areas to impose a property tax and exempt most of the
local property from the tax, thereby shifting the burden
entirely to the oil and gas industry and businesses.
MR. VAN SANT mentioned that he hasn't had an opportunity to
speak with the Attorney General's Office regarding the
constitutionality of HB 217, specifically the inequity in
taxation. He concluded by offering to answer any questions.
Number 1588
REPRESENTATIVE KERTTULA related her understanding that all
property within a municipality is taxed the same; there is no
flexibility. Committee members indicated agreement in
Representative Kerttula's understanding. She said that seems
"off," although she could see the other side as well.
REPRESENTATIVE HALCRO, in response to Representative Kerttula,
said, "Yes. ... it's really based on fairness." He pointed out
that that's why communities have to come to the legislature if
they want to alter the tax rate in order to maintain a level of
fairness. He identified the point to be: "Is it in the state's
best interest?"
Number 1671
REPRESENTATIVE MURKOWSKI inquired as to the exemptions to the
requirement that everything be taxed at the same rate.
MR. VAN SANT pointed out that there are two statutes for
exemptions. One statute is mandated under AS 29.45.030, which
refers to state, federal, and municipal property; education and
charitable hospitals; and senior citizens. There is also AS
29.45.050, which contains the optional exemptions. For example,
Fairbanks, Kenai, Valdez, North Slope, and Bristol Bay have the
10K residential exemption, which allows the exemption of up to
$10,000 worth of residential value. The optional exemptions
also include historical sites, buildings and monuments, as well
as the ability to choose which categories of personal property
to exempt. If HB 217 passes, the legislation would make AS
29.45.050 moot and thus should probably be removed.
REPRESENTATIVE MURKOWSKI remarked that it sounds as if there are
a fair number of avenues that a municipality has for exemptions.
REPRESENTATIVE HALCRO asked if HB 217 renders the senior
citizens' property tax exemption mandate moot because the local
municipalities could address that on their own under HB 217.
MR. VAN SANT pointed out that the senior citizens' property tax
exemption is mandated and thus would still be required. If the
legislature wanted to change that mandate, the exemption would
have to be removed from AS 29.45.030.
Number 1883
REPRESENTATIVE SCALZI inquired as to why the state would lose up
to $20 million with the oil and gas properties. He asked Mr.
Van Sant to review the bonding again. Representative Scalzi
understood that if the state can tax up to 20 mills and the
municipality chooses to lower its rate on other things, the
state would continue to collect up to 20 mills. Therefore,
Representative Scalzi asked if Mr. Van Sant was referring to
above [the 20 mills].
MR. VAN SANT agreed with Representative Scalzi, but he deferred
to the Department of Revenue.
Number 1923
DAN DICKINSON, Director, Tax Division, Department of Revenue,
testified via teleconference. Mr. Dickinson explained:
Up to 20 mills, the basic issue is a loss in state
revenue. In other words, if a municipality chose to
raise its mill rate - anything up to 20 mills - the
industry would not be paying more, it would simply be
paying it to the locality instead of to the state.
And that's where we estimated ... the $20 million loss
in revenue. After that point, then it becomes an
issue sort of with the industry because ... the
municipality chose to raise its rates above 20, up to
the 30 for operations or any place beyond that; if it
chose to incur a lot of bonded indebtedness that would
be money out of industry money that's no longer in the
state's pocket.
MR. DICKINSON highlighted the point that both the North Slope
and Valdez are capped at a rate below 20 mills. Therefore, the
North Slope, for example, could go above the cap on bonded
indebtedness. Due to the North Slope's low population, [the
fact] is that the North Slope's cap is much lower than 20 mills,
but with the bonded indebtedness it can be pushed to 20 mills.
Number 2044
BERT COTTLE, Mayor, City of Valdez, testified via
teleconference. Mayor Cottle informed the committee that in a
1999 AML meeting, the cities of Fairbanks and Valdez requested
that their current $10,000 personal property tax exemption be
raised. At that meeting, there was not enough time to get that
before AML and passed. However, in 2000 it was a platform issue
for AML and was adopted by AML. Therefore, AML passed that the
personal property tax exemption could rise from the current
$10,000 level to $50,000.
MAYOR COTTLE highlighted that local taxation is a local issue.
Therefore, [this legislation] would allow municipalities to
exercise self-governance and local control in regard to how the
property is assessed and taxed within their jurisdiction. Mayor
Cottle felt that if more cities had this option, then issues
such as the 10 mill cap wouldn't come up. Mayor Cottle then
turned to the comments made by the Phillips Alaska
representative and pointed out that the employees of the oil
industry would benefit from a personal property tax exemption.
Number 2269
REPRESENTATIVE MURKOWSKI related her understanding that in 2000
Valdez approached AML regarding an increase in the personal
property tax exemption from $10,000 to $50,000. She assumed
that a resolution passed, but that nothing more has happened.
MAYOR COTTLE replied, "That's correct." He explained that
Valdez, Fairbanks, and others requested that the 1972 law be
adjusted to meet inflation and other considerations so that
there would be the option for personal property exemptions in an
amount up to $50,000.
REPRESENTATIVE MURKOWSKI pointed out that HB 217 goes above and
beyond Mayor Cottle's request, which she understood was to make
current the optional exemption available through AS 29.45.050.
Therefore, Representative Murkowski inquired as to whether that
is still Mayor Cottle's preference or whether he would prefer to
remove the total exemptions currently in statute.
MAYOR COTTLE said Valdez' aim was to make adjustments in the
current $10,000 personal property tax exemption that was written
in 1972.
REPRESENTATIVE MURKOWSKI reiterated that HB 217 goes above and
beyond that goal.
MAYOR COTTLE informed the committee that there is a Senate Bill
and another House Bill that would address this. He said, "If
this is the option that we do to get there, ... this is what we
support."
Number 2343
JULIE KRAFFT, Director, Member Services, Alaska Municipal
League, said that AML's Revenue and Finance Committee is meeting
on Monday to discuss this and take a formal position. She
turned to Mayor Cottle's comments regarding raising the
residential [property] tax exemption to $50,000, which has been
reviewed by AML. Furthermore, Mayor Cottle is correct in that
the Senate Bill has been heard while the House Bill has not.
MS. KRAFFT acknowledged that Representative Kohring's bill does
go beyond what AML was seeking. She specified that AML has
never sought to change the full and true value to be what is
taxed for property. Furthermore, AML isn't interested in [an
inequitable tax scheme] because if someone receives an
exemption, then someone else has to make it up. Also the vote
on the 10 mill tax cap illustrates that people aren't unhappy
with the current system. Ms. Krafft reiterated that AML will be
reviewing HB 217 and take a formal position. She mentioned that
AML does support what Mayor Cottle is seeking and thus has been
working to try to increase that property tax exemption to
$50,000.
Number 2452
REPRESENTATIVE GUESS inquired as to how other states deal with
this. She recalled that most of the places she has lived have
had flexibility in their tax structure.
MS. KRAFFT informed the committee that Seattle, for instance,
has chosen a high sales tax. However, Alaska is much different
because of our oil and gas property. She pointed out that the
senior citizen property tax exemption has been reviewed as an
[option] only because it costs upwards of $26 million now.
REPRESENTATIVE GUESS expressed her interest in obtaining some
research in regard to flexibility and the entity that has the
authority over this area.
MS. KRAFFT pointed out that many states have county governments,
which is different in that the counties and the cities within
the counties can tax different things.
REPRESENTATIVE HALCRO surmised that HB 217 is the result of the
tax cap vote and the desire to provide communities with more
flexibility. He asked if AML's members feel that the tax cap
vote squashed the issue of property taxes and their unfair
nature.
MS. KRAFFT said that AML interpreted the result of the tax cap
vote to illustrate that people are willing to pay for the
services that they are receiving. She pointed out that there is
flexibility in that a sales tax can be utilized rather than a
property tax.
Number 2619
JAKE JACOBSON, Kodiak resident, testified via teleconference.
Mr. Jacobson turned to the oil and gas property, which is
already taxed at a different formula with a lower maximum than
other property in the state. Therefore, he felt that it would
be reasonable to amend HB 217 so that oil and gas property, and
perhaps other heavy industry as well, would continue to be dealt
with separately. Currently, locally passed tax caps sunset in
two years and can be easily overridden by a simple declaration
of emergency, in the case of Kodiak. Mr. Jacobson related his
understanding that HB 217 would allow local communities to set
the property tax caps without the automatic sunset provision.
Therefore, the local communities could specify that the local
assembly could override the bill by well-defined parameters or
that the cap couldn't be overridden at all. He explained that
the current state law limits property tax exemptions on homes,
other than those of senior citizens, to $10,000. He echoed the
earlier comments regarding the legislation that proposes raising
the $10,000 exemption to $50,000.
MR. JACOBSON said that HB 217 would allow local communities to
exempt homes, for instance, at whatever level they desire. That
would be subject to changes per local community voter approval.
If, as was previously suggested, people are satisfied with the
current status, then the passage of HB 217 will allow [a
municipality] to maintain the current status or to tailor it to
suit their local needs. Therefore, Mr. Jacobson felt that HB
217 is worthwhile and thus he hoped it would pass.
Number 2746
CO-CHAIR MORGAN announced that HB 217 would be held due to the
unanswered questions surrounding the bill.
ADJOURNMENT
The House Community and Regional Affairs Standing Committee
meeting took an at-ease at 8:50 p.m. in order to prepare for the
overview from the Alaska Housing Authority. [The minutes for
that overview can be found under the 8:59 a.m. meeting for the
same date.]
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